Indonesia to inject another USD750m in micro-loan subsidy programme

This will prop up overall loan growth, says Fitch.

The Indonesian government has hiked its budget for the KUR, its micro-loan subsidy programme. With an additional IDR10trn (USD750m) allotted for the programme, Fitch Ratings say that the initiative will help support loan growth in the face of weaker consumer and business confidence.

Under the programme, the government will provide interest-rate subsidy of up to 10 percentage points to the KUR programme. This should allow the mainly state-owned distributor banks to cut the lending rate for KUR loans to 9% compared with above 20% for other non-subsidised micro-loans.

According to Fitch, the government is targeting KUR loans of IDR100trn-120trn in 2016, which represents a five-fold increase compared to only IDR23trn of KUR loans which were channeled in 2015.

Fitch noted that this should equate to around 20% of the banking sector's total loan increase - based on the central bank's estimate of 12%-14% bank credit growth this year.

“The subsidy is intended as a stimulus measure to support consumer growth in response to a broadly weaker macroeconomic environment,” said Fitch.